Adidas Sees 2014 Profit Below Estimates as Currencies Weigh

By Aaron Ricadela -
Mar 5, 2014

Adidas AG (ADS) forecast 2014 profit as
much as 17 percent below analysts’ estimates as the weakness of
currencies such as the Russian ruble and Argentine peso weighs
on the world’s second-biggest sporting-goods maker.

Profit will be between 830 million euros ($1.14 billion)
and 930 million euros this year, the Herzogenaurach, Germany-based company said today, falling short of the 1 billion-euro
average estimate of 30 analysts compiled by Bloomberg. The
crisis in Ukraine poses a further risk to the business, Chief
Executive Officer Herbert Hainer said at a press conference.

With almost three-quarters of revenue coming from outside
western Europe, Adidas is particularly vulnerable to exchange-rates swings. The euro has advanced 24 percent in the past year
against the ruble and 64 percent against the Argentine peso.
Adidas may struggle to meet its 2015 goal for an 11 percent
operating margin, said Cantor Fitzgerald analyst Allegra Perry.

To achieve the increase in profitability needed to meet the
margin target “is highly challenging,” Perry wrote in a note.

Adidas fell as much as 3.5 percent in Frankfurt trading and
was down 0.8 percent at 82.73 euros as of 11:26 a.m.

Citigroup Inc. analysts said in a note they expect average
profit estimates for 2014 to fall by about 10 percent.

Russia’s dispute with Ukraine adds to this year’s foreign-exchange risk and may make consumers in the region nervous,
Hainer said at a press conference at Adidas headquarters.

Watching Closely

“We are watching the situation very closely, as you can
imagine, and are in constant contact with our management team
there,” Hainer said. The company saw no negative effect on
sales in the first two months of the year, he said.

Adidas gets more than 1 billion euros of sales from Russia,
where business last year was hurt by a switchover to a new
distribution hub that led to inventory shortages.

At constant exchange rates, sales this year will increase
at a high-single-digit percentage pace, Hainer said, boosted by
the World Cuptournament that starts in Brazil in June.

Adidas, the main competitor of Nike Inc., leads the market
in soccer and is seeking 2 billion euros of sales from the sport
this year. The company will supply the official match ball and
uniforms to eight teams at the month-long World Cup.

Messi, Bale

The tournament is played every four years and provides a
lift for sporting-goods makers as fans snap up cleats, jerseys
and other apparel. The lead-up to the 2014 event hasn’t all been
smooth sailing for Adidas, which last month recalled a range of
T-shirts after Brazil’s tourism ministry complained they linked
South America’s biggest country with sexual activity.

Adidas has been emphasizing jerseys and cleats branded with
the likenesses of star players including FC Barcelona’s Lionel Messi and Real Madrid’s Gareth Bale. The company last year also
introduced “Boost” cushioning technology for its running shoes
that it plans to migrate to other categories of shoes.

Excluding currency effects, sales in emerging European
markets grew 11 percent, North American sales were up 14 percent
and revenue from China expanded 8 percent.

Hainer Contract

Net income for the quarter was 42 million euros excluding
goodwill impairment losses, compared with the 37.1 million-euro
average estimate. The company made a loss of 7 million euros in
the same period of last year.

Adidas said yesterday that Hainer’s contract as CEO has
been extended by two years until March 2017, and that it’s begun
to plan for the transition to his successor. Hainer took the top
executive job at Adidas in 2001 and is 59.

The CEO has said he is aiming for sales of 17 billion euros
by 2015 and profit that advances faster than sales.